LinkedIn (LNKD) Q3 Earnings: Is A Surprise In The Cards?

Professional networking behemoth LinkedIn Corp. (NYSE:LNKD) is set to report third-quarter 2016 results on Oct 27, 2016. In the last quarter, the company delivered a positive earnings surprise of 200%. Let’s see how things are shaping up for this announcement.

Factors to Consider

LinkedIn, a leader in the emerging online professional networking segment, enjoys increasing popularity and steady growth worldwide. The company posted better-than-expected results in the second quarter and witnessed strong year-over-year improvement on both fronts. Moreover, the company witnessed an impressive 19% increase in its cumulative member count. Additionally, we are encouraged by top-line growth of 30%–50% that was recorded over the past few quarters by this company.

However, the company did not update its outlook for 2016. It did not hold a conference call in light of the pending merger with Microsoft Corp (NASDAQ:MSFT). Notably, the two companies entered into a merger agreement on Jun 11, under which Microsoft will acquire LinkedIn for a total cash consideration of approximately $26.2 billion.

LinkedIn’s traction in the mobile segment is particularly impressive, primarily attributable to the launch of its applications for Apple’s (NASDAQ:AAPL) iPhones and Android-based smartphones. Synergies from its acquisitions — Lynda.com, Newsle and Bizo — are also expected to garner additional earnings through targeted marketing strategies in the near term, apart from enhancing user experience.

We believe that LinkedIn’s initiatives to boost advertising revenues through product launches and partnership programs are noteworthy. Meanwhile, advertisers are also taking note of the company’s growing user base, in our view.

LinkedIn’s investments in strategic products are essential as its peers like Facebook (NASDAQ:FB) and Twitter have started looking for opportunities to expand in the professional networking space.

On the flip side, continued investments in new and improved products and services might dent LinkedIn’s profits in the to-be reported quarter, even though over the long run, these investments will drive member growth and user engagement.

LINKEDIN CORP-A Price and EPS Surprise

Earnings Whispers?

Our proven model does not conclusively show that LinkedIn is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Earnings ESP for LinkedIn is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents per share. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: LinkedIn carries a Zacks Rank #3 which when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Amazon.com, Inc. (NASDAQ:AMZN) with Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

HubSpot, Inc. (NYSE:HUBS) with Earnings ESP of +13.89% and a Zacks Rank #3

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